Page 73 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation

Notes

Case Study Megahertz Communications

stablished in 1982, UK based Megahertz Communications quickly became one of
Great Britain’s leading independent broadcasting system builders. The company’s
Ecore skill is in the design, manufacture and installation of TV and radio broadcast
systems, including broadcast and news-gathering vehicles with satellite links. In 1998,
Megahertz’s managing director, Ashley Coles, set up a subsidiary company, Megahertz
International, to sell products to the Middle East, Africa, and Eastern Europe. While the EU
market for media and broadcasting is both mature and well served by large established
companies, the Middle East, Africa, and Eastern Europe are growth markets with significant
long-term potential for media and broadcasting. They also were not well served by other
companies, and lacked an adequate supply of local broadcast engineers.
Megahertz International’s export strategy was simple. The company aimed to provide a
turnkey solution to emerging broadcast and media entities in Africa, the Middle East, and
Eastern Europe, offering to custom-design, manufacture, install, and test broadcasting
systems. To gain access to customers, Megahertz hired salespeople with significant
experience in these regions and opened a foreign sales office in Italy. Megahertz also
exhibited at a number of exhibitions that focused on the targeted regions, sent mailings
and e-mail messages to local broadcasters, and set up a Web page, which drew a number
of international inquiries.
The response was swift. By early 2000, Megahertz had already been involved in projects in
Namibia, Oman, Romania, Russia, Nigeria, Poland, South Africa, Iceland, and Ethiopia.
The international operations had expanded to a staff of 75 and were generating £310
million annually. The average order size was about £3250, 000, and the largest £3500, 000.
In recognition of the company’s success, in January 2000, the British government picked
Megahertz to receive a Small Business Export Award.

Despite the company’s early success, it was not all smooth sailing. According to Managing
Director Coles, pre-shipment financing became a major headache. Coles described his
working life as a juggling act, with as much as 20 percent of his time spent chasing money.
Due to financing problems, one week Megahertz could have next to nothing in the bank;
the next it might have £3300,000. The main problem was getting money to finance an
order. Megahertz needed additional working capital to finance the purchase of component
parts that go into the systems it builds for customers. The company found that banks were
very cautious, particularly when they heard that the customers for the order were in
Africa or Eastern Europe. The banks worried that Megahertz would not get paid on time,
or at all, or that currency fluctuations would reduce the value of payments to Megahertz.
Even when Megahertz had a letter of credit from the customer’s bank and export insurance
documentation, many lenders still saw the risks as too great and declined to lend bridging
funds to Megahertz. As a partial solution, Megahertz turned to lending companies that
specialize in financing international trade, but many of these companies charged interest
rates significantly greater than those charged by banks, thereby squeezing Megahertz’s
profit margins.
Coles hoped these financing problems were temporary. Once Megahertz established a
more sustained cash flow from its international operations, and banks appreciated the
ability of Coles and his team to secure payment from foreign customers, he hoped that
they would become more amenable to lending capital to Megahertz at rates that would
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